Beyond Tax Incentives: New Strategies for Clean Tech Job Growth

To attract or to grow? That may not have been Hamlet’s question, but it is the question of the dozens of states trying to build clean tech clusters across America today. As Governor’s offices, Mayors, Chambers of Commerce, and other economic development organizations try to turn their regions into the economic engines of the green economy, they must figure out the right mix of programs and policies to grow, attract, and retain clean tech companies.

While tax credits and other financial incentives to lure green tech company headquarters and manufacturing facilities have been successful in some states, they may not be enough. As demonstrated by the story of Evergreen Solar, who decided to move its operations to China despite $58 million in tax credits and direct grants from the Massachusetts government, incentives can’t be a state’s whole game plan for economic development.

Given that roughly 95 percent of annual job gains in an average state come from the expansion of existing businesses or the birth of new establishments (Brookings), one would think that state economic development practitioners’ focus would be on clean tech entrepreneurship development, technology transfer and commercialization, providing forums for networking and best-practice sharing, and technical assistance to the companies already creating green jobs. But while these types of activities have all shown promise in increasing the growth of existing businesses and the start of new ones, they are often left to other underfunded agencies of state government or independent and siloed efforts by research universities, incubators, community non-profits, or public-private partnerships at the regional level.

The traditional approach: tax credits for business recruitment

The way many states are pursuing clean tech industry growth mirrors the traditional approach toward economic development: a primary focus on tax incentives and marketing for clean tech business recruitment. In fact, 21 states offer corporate tax credits for renewables, with more than a handful including credits for renewable energy equipment manufacturing in addition to project development and generation. Further, several states offer specific tax credits for new companies creating green jobs, such as Virginia’s Green Jobs Tax Credit, where a company can earn $500 per year (up to five years) for every green job created that pays an annual salary above $50,000.

These more traditional policies have accomplished a lot. Oregon’s 50% Business Energy Tax Credit (BETC) for renewables is largely to thank for the state’s attraction of several solar equipment manufacturing facilities and the U.S. headquarters for wind energy giants Vestas and Iberdrola. Further, an Oregon Department of Energy study showed that BETC (along with its residential component, RETC) generated a statewide economic impact of $576 million, created 1,700 jobs worth $42 million in wages, and delivered $22 million in new state and local tax revenues. All that for a cost to the state of only $244 million during 2007 and the first 10 months of 2008.

In Tennessee, the Department of Economic and Community Development is sure their Green Energy Tax Credit and incentives for clean energy technology contributed to the state’s ability to land three new solar manufacturing facilities (Confluence Solar, Hemlock Semiconductor and Wacker Chemie, AG) during the Bredesen administration. The former Governor acknowledged the impact on the state’s economy: “Two years ago, we set upon a strategy to make Tennessee a significant player in the solar industry. Since then, we’ve seen more than two billion dollars in capital investment, more than a thousand jobs created, and the development of the [West Tennessee] Solar Farm.”

And in Arizona, the Chinese company Suntech Power Holding Co. was not alone in selecting Arizona for its new facility due to the state’s renewable energy manufacturing tax credits for job creation. Other companies, including Tower Automotive and Gestamp Solar Steel USA have been lured by AZ state tax incentives geared towards renewable energy manufacturing. First Solar Inc., the world’s second-largest manufacturer of solar panels, is also considering building a factory in Mesa, which would bring about 600 new jobs to the Phoenix area.

Moving towards comprehensive industry growth

While tax breaks and credits have a role to play in business attraction, they will only go so far as U.S. states find themselves unable to compete with the massive subsidies, low-interest loans, and heavily subsidized land provided by the Chinese government. Further, as Republican governors take office and state legislatures scramble to balance their budgets, we should expect continued cuts to state-led economic development. As these agencies find themselves with limited funds for wooing clean energy companies, it will become more important that they try innovative approaches to economic development, centered around identifying the region’s unique competitive advantages and leveraging existing assets and resources (known in the field as “cluster development”).

During a U.S. Economic Development Administration-sponsored webinar on “Exploring New Ideas for Rural Wealth Creation Strategies,” the RUPRI Center for Rural Entrepreneurship’s Deb Markley explained how this cluster approach could work for rural Arkansas:

“When Cotton Plant, AR began thinking about new ways to create wealth, they identified two assets the Arkansas Delta had in abundance: sunlight and land. This led to a natural interest in fleshing out the solar value chain and exploring the opportunity to use local political leadership, existing solar installers, technical expertise at the State Energy Office, and the transmission systems of the Arkansas Rural Electric Cooperatives to make solar projects a driver of the regional economy.”

While the project is still just a proposal, Markley believes that this kind of long-term, multi-stakeholder approach to economic development will be best suited to helping low-income regions create sustainable, values-driven pathways out of poverty and economic decline.

Meanwhile, the Oakland Partnership, a public-private partnership of former Oakland Mayor Ron Dellums and the Oakland Chamber to build “a thriving, innovative, equitable, globally competitive regional economy that creates 10,000 new jobs in the next five years” also used a “cluster approach” to growing the East Bay green economy. While the City of Oakland couldn’t outcompete on tax incentives or corporate grants, by leveraging the resources of local green tech entrepreneurs, marketing experts, policymakers, training centers, non-profits, and universities, they did come up with a robust strategy for growing the region’s “Green Industry Cluster.” Today, the university-city-industry collaboration continues through the East Bay Green Corridor Partnership.

And in Ohio, the state’s effort to build a clean energy manufacturing cluster based on its existing base of industrial suppliers, central location and transportation infrastructure, and academic institutions with world-class capabilities in polymers, nanotechnology and engineering has created 9000 jobs in the wind and solar energy manufacturing industries. The combination of Ohio’s internationally known manufacturers, state green collar education and training programs, university collaboration through the University Clean Energy Alliance of Ohio (UCEAO), and the Ohio Third Frontier state initiative to support applied research and commercialization, entrepreneurial assistance, and early-stage capital formation, have led renewable energy manufacturing to be one of the “fastest-growing business sectors for job creation in the state.” (Environmental Law and Policy Center)

Further, in a recent analysis plotting the Global Cleantech 100 list of most-promising clean tech start-ups with top-ranked doctoral programs in energy and environmental research, Brookings Institution researchers found that there was a strong correlation between the two. Thus, there is some legitimate evidence to believe that universities, not just government economic development agencies, have a key role to play in clean tech economic development.

A new way forward

Granted, not every region has an abundance of sunlight for solar energy or a top-tier university to spin off clean tech companies. But with more emphasis on mapping and leveraging their existing regional assets and tapping the brainpower of local green tech entrepreneurs and clean energy researchers, states have a better chance of building lasting clean tech clusters. Trying to compete with each other, and moreover our competitors to the East, on tax incentives and business costs alone, may not be enough to win the prize of clean tech jobs.

Elizabeth Redman is the Founder of Cross Sector Strategies, a consulting firm that specializes in collaborative economic development strategies and policies to promote sustainable business growth.